Global crude oil prices have been halved since the middle of
last year but local pump prices have not seen a corresponding fall in price a
situation that is raising suspicion against oil companies.
The oil industry has explained that Uganda does not import
crude oil and therefore it is unrealistic to see a direct relation between pump
prices and global prices.
"Last year the bench mark West Texas Intermediate (WTI) peaked at $107.73 a barrel in June before plummeting to a five-year low of $46.84 on Wednesday. A barrel of oil contains about 159 litres.Industry players attributed the stubborn pump price to several factors...
The collapse was attributed to higher supplies on the world market as the US was producing more of its own oil and lower demand due to slowing economies in Europe and Asia.
Top industry officials say the pump price were not following
suit because of the increasingly weakened shilling during last year.
The dollar hit a three high against the dollar at sh2,834 last
week from an annual low of sh2,453 in February. This constituted a 15% fall in the
value of the shilling during the year.
So one would expect some savings given that crude prices
fell by three times the rate at which the shilling depreciated against the
dollar.
Other industry officials argue that a change in crude prices
do not translate in a one-for-one change in pump prices. That the cost of
refining the product is big component of price and may negate a lot of the
savings from the falling crude prices.
The components that constitute the pump price in Uganda are
the cost of refined oil at Mombasa, distribution or transportation and marketing
costs, taxes and the profit margin.
The logic would be that if the cost of crude has fallen so
drastically and the taxes remain the same, since they are charged per litre and
are not a function of the cost, the distribution costs remain largely same
since there has been no disruption in transport from the coast and the size of
their networks have not seen any significant growth there are savings being
made, which are not being passed to the end consumer.
Industry players choose to hold the pricing formula close to
their chest, unwilling to divulge it for competitive issues. And for good
reason.
In the US on average the crude component of the pump price
account for 66%, refining 11%, distribution and marketting11% and taxes 12%.
Across the border in Canada the cost of crude accounts for 54%, refining
distribution and marketing 17% and taxes 29%.
In Uganda we know that taxes on a litre of petrol or diesel
are sh820 and sh530 respectively, which would account for about 22% and 17% in
the case of the respective fuel pump prices.
Whereas our distributors argue they buy refined product
using the current price of about $49 a barrel this comes to about sh832 as the
component of crude to our pump price or about 22%.
Given the above it means that unlike in the US and Canada where the refining and distribution costs – where the margins are made, constitute 22% of the pump price in Uganda these constitute 56%.
Of course the argument can be made that we are landlocked
and the distribution costs are higher than in Kenya and Tanzania, it still does
not explain why we are not getting more of the savings from the collapse of
world fuel prices.
